WASHINGTON - Revelations of bid-rigging
within the insurance industry may lead Congress to a "Pandora's box"
of unethical conduct, a top investigator told Congress on Tuesday,
just before two more executives pleaded guilty.

New York Attorney General Eliot Spitzer, who launched an
investigation Oct. 14 into major insurance brokerages suspected of
price-fixing, told the Senate Governmental Affairs Committee that
more disclosures of bad practices were coming.

"There have been criminal pleas entered, there will be more
criminal pleas entered very shortly," said Spitzer. There have also
been high-level resignations and employee layoffs.

Hours after he spoke, two executives at Zurich American Insurance
Co. pleaded guilty in New York to criminal charges, adding another
major insurance company to the list of those implicated.

Senior underwriters John Keenan and Edward Coughlin pleaded
guilty to misdemeanors for helping submit losing bids in order to
steer business to a predetermined favorite. Both are cooperating
with investigators.

Connecticut Attorney General Richard Blumenthal told the
committee that small cities and towns may have been socked with
excessive charges for property casualty, health and workmen's
compensation insurance that municipalities felt powerless to
challenge. Those costs, he said, would ultimately be borne by
taxpayers. His office is now culling information from local
officials about their dealings with insurance companies.

Blumenthal insisted that state insurance laws, including
Connecticut's, should be "reinvigorated and reinvented" to combat
fraud, illegal steering and bid-rigging. Specifically, he called for
a new state code of ethics for both insurance brokers and agents,
requiring them to tell clients about special compensation
arrangements.

He said any changes in federal regulations should not weaken the
historic role of states in regulating the industry.

Insurance companies are supporting legislation that they say
would create uniform, nationwide standards for the industry. State
officials have expressed fear that whatever legislation Congress
writes will pre-empt, and may be weaker than, state regulation

Spitzer, who has also conducted high-profile probes of Wall
Street investment firms and mutual fund companies, said Congress
must take a harder look at the insurance industry. The recent
movement of insurance capital to offshore entities is a worrying
sign, he said.

"These are issues that Congress must begin to inquire into," said
Spitzer. "There is, I suspect, a Pandora's box that should be
opened."

In a civil lawsuit, Spitzer maintains that Marsh & McLennan
Companies Inc. took payoffs from insurance companies, resulting in
businesses being forced to pay more than necessary for property and
casualty policies.

He has accused the nation's biggest insurance brokerage of bid
rigging, price fixing and heavy use of incentive fees - fees paid to
brokers over and above regular commissions by insurance companies in
exchange for getting more business. These are sometimes called
marketing service agreements or placement service agreements.

Some of the largest insurers, including American International
Group Inc., ACE Insurance Co. of North America, The Hartford and
Munich American Risk Partners are named in Spitzer's suit. Others
are said to be under investigation. Two AIG executives and an ACE
official have pleaded guilty to illegal conduct.

A number of insurance companies, including Marsh & McLennan,
have announced changes in business practices and commissions since
the inquiry began.

Marsh & McLennan, which has seen its share value drop nearly
42 percent since Spitzer announced his investigation, ousted two top
executives of Marsh Inc., its risk and insurance services unit. The
parent company's senior vice president and general counsel also
stepped down. The company also said it will lay off 3,000 employees,
or about 5 percent of its work force, because of fallout from the
probe.